Bloomberg News

Emerging Stocks Retreat for Fourth Day on Commodities, Earnings

August 29, 2012

Emerging-market stocks dropped for a fourth day, sending the benchmark index to a 3 1/2 week low, as falling commodities dragged down producers and Chinese companies from Air China Ltd. to Evergrande Real Estate Group Ltd. posted lower earnings.

The MSCI Emerging Markets Index lost 0.1 percent to 955.71 at 12:55 p.m. in London. An MSCI Inc. gauge of raw-material shares fell for a sixth day, set for the longest losing streak since May, as Jiangxi Copper Co. dropped 5.1 percent. Air China and Evergrande sank at least 2.9 percent. Eurocash SA (EUR), Poland’s biggest seller of non-durable consumer goods, tumbled the most on record as its chief executive officer sought to sell a stake.

Metals retreated before a report on American economic growth and a hurricane in the U.S. curbed demand for oil at refineries. The MSCI emerging-market index’s valuation slid to 1.6 times net assets today, a 10 percent discount versus the MSCI World Index of developed-nation shares, the widest gap since January 2009, according to data compiled by Bloomberg.

“Investors are taking a cautious stance as the threat of a global slowdown hasn’t really disappeared,” said Jonathan Ravelas, the chief market strategist at Manila-based BDO Unibank Inc. “The sentiment for some investors is that it might be better to stay on the sidelines and wait if the U.S. and Europe will announce additional stimulus plans.”

U.S. Data

The U.S. economy probably grew at a faster pace than initially estimated in the second quarter, economists said before a Commerce Department report today. Federal Reserve Chairman Ben S. Bernanke may shed light on monetary policy in a speech to central bankers on Aug. 31 in Wyoming, while European Central Bank President Mario Draghi, who pledged to do whatever it takes to preserve the euro, canceled his trip to Wyoming.

The 21 countries in the MSCI emerging market index send about 13 percent of their exports to the U.S. and 30 percent to the European Union on average, data compiled by the World Trade Organization show.

The Shanghai Composite Index (SHCOMP) sank 1 percent to the lowest level since February 2009, while the BSE India Sensitive Index retreated 0.8 percent. Russia’s Micex Index and Poland’s WIG20 both dropped 0.6 percent. Vietnam’s VN Index (VNINDEX) climbed 1.9 percent, rallying from the lowest level since January.

Poland’s zloty weakened 1.1 percent against the euro, leading declines among emerging-market currencies, amid speculation the central bank may cut interest rates as economic growth slows. The forint depreciated 0.8 percent. Hungarian policy makers unexpectedly reduced borrowing costs yesterday. Russia’s ruble fell 0.6 percent against the dollar.

Default Risk

The Markit iTraxx SovX CEEMEA Index of east European, Middle Eastern and African credit-default swaps rose less than one basis point, or 0.01 percentage point, to 238. The extra yield investors demand to own emerging-market bonds over U.S. Treasuries declined three basis points to 317, according to JPMorgan Chase & Co.’s EMBI Global Index.

The MSCI Emerging Markets Materials Index dropped 0.7 percent, the most among 10 industry groups, while MSCI’s gauge of energy stocks sank 0.4 percent. Jiangxi Copper, the biggest Chinese producer of the metal, retreated the most in three months. OAO Lukoil, Russia’s second-largest oil producer, declined 0.5 percent.

Oil fell from a one-week high in New York after Hurricane Isaac struck the coast of southeastern Louisiana. A shutdown of refineries because of the storm has curbed crude demand, according to Goldman Sachs Group Inc. Copper dropped 0.7 percent in London, while tin plunged 2.7 percent.

Earnings Drop

Evergrande, China’s biggest developer by sales volume, dropped 3.1 percent after reporting a 21 percent decline in its first-half underlying profit. Air China, the nation’s biggest international carrier, said first-half profit slumped 77 percent. The shares sank 2.9 percent to the lowest level since July 9.

Eurocash tumbled 9 percent. CEO Luis Amaral, who owns 51 percent of the Polish company, is selling about 7 million shares, or 5 percent, according to terms of the transaction. Amaral’s sale is aimed at increasing the stock’s free float on the Warsaw Stock Exchange, Jan Domanski, head of investors relations at Eurocash, said in an e-mailed response to questions from Bloomberg News.

OAO Severstal dropped 0.7 percent. Russia’s second-largest steel producer by output said second-quarter earnings before interest, taxes, depreciation and amortization rose 18 percent to $664 million from a quarter earlier, missing the average estimate of 10 analysts surveyed by Bloomberg.

Jaiprakash Associates Ltd. (JPA) tumbled 9.2 percent, the most since September. The Indian conglomerate with businesses from real estate to roads sold $150 million of convertible bonds, the biggest offering by an issuer from the nation this year.

To contact the reporter on this story: Ian Sayson in Manila at isayson@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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